When purchasing a motor vehicle in India, buyers often face confusion about two different levies that increase the overall cost:

• Goods and Services Tax (GST) & Compensation Cess under the GST Act, and
• Tax Collected at Source (TCS) under Section 206C(1F) of the Income Tax Act, 1961.

Additionally, buyers are required to pay registration charges, road tax, and insurance, which are in the nature of statutory or third-party payments. Since these are pure reimbursements, they are not subject to GST or TCS.

This article provides a detailed explanation of:

• How TCS and GST are computed on vehicle sales,
• Whether statutory charges form part of the taxable value, and
• The difference between Ex-showroom Price and On-road Price.

Legal Framework

TCS on Motor Vehicles (Section 206C(1F))

• Applicability: If the ex-showroom price of a motor vehicle exceeds ₹10,00,000, the seller must collect TCS @1% from the buyer.
• Base of TCS: Computed on the GST-inclusive value (ex-showroom price), not just the base vehicle cost.
• Exclusions: Registration, insurance, and road tax are excluded, as they are pure reimbursements.
• Credit to Buyer: TCS is not an additional cost in the long run, since it appears in the buyer’s Form 26AS / AIS and can be claimed as tax credit while filing ITR.

GST & Cess on Vehicles

• GST on vehicles generally ranges from 28% + Compensation Cess (1%–22%), depending on engine capacity and type.
• GST is levied on the net transaction value (after discount) of the vehicle.
• Cess is charged on the same base value as GST, not on the GST amount itself.
• Registration charges, road tax, and insurance are outside the scope of GST, since the dealer acts as a pure agent while collecting these charges.

Practical Computation Scenario

Example: Mr. Raju buys a new car

Key Observations

1. Threshold Condition: Since the ex-showroom price (₹16,16,000) exceeds ₹10,00,000, TCS @1% becomes applicable.
2. Base for TCS: TCS is calculated on ₹16,16,000 (GST-inclusive) and not on ₹12,00,000 (base price).
3. Pure Reimbursement Charges: Registration, insurance, and road tax (₹87,000 total) are excluded from both GST and TCS as they are collected by the dealer on behalf of the government/third party.
4. GST & Cess Base: GST (₹3,36,000) and Cess (₹1,80,000) are levied on the net discounted price of ₹12,00,000 only.
5. On-road Price: The buyer finally pays ₹17,19,160, which is higher than the ex-showroom price due to TCS and other statutory charges.

Comparison Chart

Buyer Awareness

• Always ask for the on-road price, as it reflects the real amount payable.
• Remember, TCS is adjustable in your income tax return—it is not a permanent cost.
• Don’t confuse GST and cess with additional charges; these apply only to the vehicle price, not to reimbursements.

Conclusion

The computation of TCS and GST liability on vehicle sales highlights a crucial difference between ex-showroom price and on-road price.

• Ex-showroom price forms the basis for GST, cess, and TCS (if above ₹10 lakh).
• On-road price is the final amount payable by the buyer, including reimbursements like registration, road tax, and insurance.

Thus, while ex-showroom price is relevant for tax calculation, on-road price represents the true cost of ownership. Buyers should always demand the on-road price for clarity before making purchase decisions.